Morris Chen on CRE Dispersion and Data Center Restraint | Bloomberg TV
Morris Chen, a DoubleLine portfolio manager, emphasizes selective approach to commercial real estate credit investing, favoring short duration opportunities while maintaining skepticism on data center investments due to uncertain risk-reward dynamics compared to traditional real estate.
Summary
Morris Chen discusses DoubleLine's commercial real estate investment strategy in a bifurcated market recovery over the past three years. He emphasizes that selectivity is paramount, as different property types and markets present different risks. The team conducts thorough analysis to evaluate loan performance over 2-3 year horizons and assess on-time payoff probabilities at loan maturity.
Regarding data centers, Chen reiterates his previous skepticism from February 2025. While acknowledging market evolution and increased corporate financing activity in the data center space, he argues that data center bonds lack attractive relative value compared to other commercial real estate alternatives. He frames this as a back-to-basics investment philosophy: when spreads on data center debt are similar to those of office, retail, or other property types, the additional uncertainty of data centers makes them unsuitable for debt investors. Instead, Chen believes data center exposure is better suited for equity investors who can capture the upside potential.
Chен identifies two potential catalysts that could change DoubleLine's positioning: pricing levels and additional market knowledge as the asset class evolves. However, he emphasizes that the commercial real estate market offers abundant opportunities in traditional property types with established historical precedent, suggesting data centers remain on the sidelines for their credit strategy.
About this episode
DoubleLine Portfolio Manager Morris Chen joins Bloomberg’s ETF IQ to discuss his approach to commercial real estate (CRE) credit in a bifurcated market. With the CRE recovery uneven across property types and geographies, Mr. Morris emphasizes that selectivity is everything, with careful bottom-up credit analysis essential to identifying which loans will pay off on time at maturity versus those at risk of extension or impairment. On data centers, he maintains his skeptical stance from early 2025, arguing that when spreads on data center commercial mortgage-backed securities are comparable to more traditional property types, there is little reason to take on the additional uncertainty. Mr. Morris sees data center exposure as better suited for the equity side of the capital structure and notes that with a full menu of brick-and-mortar lending opportunities available, DoubleLine remains on the sidelines in that space for now – though a meaningful spread reset could change the calculus.
Key Insights
- Morris Chen argues that data center debt financing has shifted toward the corporate space rather than commercial mortgages, but this doesn't change his skepticism because the key question is relative value—if data center bond spreads match spreads on office or retail bonds despite higher uncertainty, they don't offer compelling risk-adjusted returns.
- Chen contends that data center risk exposure is better suited to equity investors rather than debt investors because debt investors in uncertain asset classes with default scenarios would own speculative shell space rather than income-generating assets with historical precedent.
- Chen identifies selectivity across different property types and markets as essential because the commercial real estate recovery over the past three years has been bifurcated, requiring careful analysis of what will happen in the next 2-3 years to assess on-time loan payoffs.
Topics
Transcript
[0:03] Joining us I'm thrilled to say is Morris Chen. He is a portfolio manager over at DoubleLine joining us in the studio. Morris, it's great to see you. >> Likewise. >> So, let's talk a little bit about what you're doing with this portfolio because I'm taking a look at the notes you sent over to our producers and you point out that you're favoring short duration CRE credit here, but this isn't a buy CRE beta sort of market. It's not a blanket buy. Talk to us about, you know, just how selective you have to be right now. >> Yeah, I mean, we've got a pretty fairly [0:35] bifurcated recovery over the last 3 years, so selectivity…
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